The general goal of this proposal is to provide a superior computational tool for quantitative analysis of the structure-function relationships in proteins and of chemical and biochemical reactions in aqueous solutions. The applicants plan to achieve this goal by combining the most advanced approach of computational quantum mechanics (Density Functional Theory, DFT) and recently developed methods of treatment of solvation effects based on classical electrostatics and continuum theory. In Phase I the following steps will be undertaken to develop, validate and test the software: 1) A prototype software for evaluation of hydration effects on small quantum mechanical systems in solution will be developed and applied to calculation of hydration energies and solution dipole moments of small molecules for which experimental data is available; dependence of the results on the basis sets and parameters of the continuum theory will be studied. (2) As accurate a representation as possible of the electron density is critical for the success of the computations, advanced methods of Distributed Multipole Analysis (DMA) will be tested with DFT to evaluate effects of accurate multipole expansion of the results.(3) Classical multipoles and atomic polarizabilities of a protein-like medium will be self consistently introduced into DFT along with the solvent reaction field to allow both continuum and atomic representations of the environments of protein active sites. (4) Test calculations will be performed for the enzymatic mechanism of serine proteases to compare DFT results with published results of experimental and theoretical studies. The system will be simplified to make computations feasible within the time frame of the Phase I of the proposal. (5) The prototype software will be given for independent testing and evaluation of its scientific and commercial merits to a few established research groups and a commercial software company. One such company, Biosym, is interested in rights for the software developed under this project.